A unique, hard-hitting report just completed by a California attorney exposes a largely unknown federal food-stamp racket involving large grocery retailers, food manufacturing giants and other private players, including the Federal Reserve and JPMorganChase, which combine to channel food stamp spending into a gravy train for the heavy hitters in the food industry.

And the report’s author, Michele Simon, says administrative costs added by these privateers inflate the overall price tag of the Supplemental Nutrition Allowance Program (SNAP). And high program costs are prompting potentially deep legislative cuts to SNAP in the pending Farm Bill — when a record 46 million Americans use SNAP, of which 47% are children.

A major fear is that SNAP cuts could wrongly target the program’s central mission to feed the hungry, when cuts should target the private players who harness the program for their own gain.

“If we want to cut, let’s look at administrative cuts—not [necessarily] cutting the benefits themselves,” Simon told this writer. She’s disturbed that JP Morgan and the Federal Reserve are well positioned in this debacle. Yet, her 28-page report, for all that it reveals, just begins to explore this fathoms-deep issue, since critical data is being withheld by the USDA.

Over the last 7 months, Simon organized the report, “Food Stamps, Follow the Money: Are Corporations Profiting from Hungry Americans?” She wrote it because she felt there was more to the story after a 2010 debate over how SNAP dollars should be spent in New York City.

The city asked the USDA for a waiver in order to conduct a two-year trial “to prevent SNAP funds from being used to purchase sugar-sweetened beverages,” wrote Simon, who added, “Several [nine] states have proposed bills similar to New York’s approach, to modify SNAP-eligible items to promote health. But each time, the food industry fought these bills. To date, none have passed.”

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The big picture is that once Congress approves the Farm Bill budget for the USDA, (which administers SNAP 50/50 with the states), the states, upon enrolling SNAP participants, contract with banks to get the EBT debit cards that SNAP recipients now use (replacing the old food coupons). Card-carrying participants then enter a system wherein the major food manufacturers lobby the USDA to deny states the right to alter SNAP-purchase guidelines, so major food and beverage-makers (Mars, PepsiCo, Coca Cola, Kraft etc.) can reap the harvest of 46 million cardholders buying their products—including sweets with little to no nutritional value.

The big-box food makers refuse to surrender this arrangement, for, as Ms. Simon sees it, if they and their cohorts at the major retail outlets allow diverse nutritional considerations requested by the states to decide policy, then SNAP’s vast purchasing power could be redirected not only toward nutritional food (a novel idea for a “supplemental nutrition” program) but also toward smaller food outlets, including farmers’ markets—which, according to Simon, currently receive perhaps 0.01% of SNAP purchases. She imagined how much SNAP spending could revive the economy if most of it helped local agriculture, spurred jobs and ironically even helped some people get off food stamps. Indeed, the nation’s food relief program started on the basis of helping the needy buy fresh produce to reduce farm surpluses, says the report, which adds:

“Given the huge stakes for the food and beverage industry in the debate over SNAP purchases, lobbying has played a critical role in shaping public policy. Unfortunately, due to reporting rules, it’s difficult to paint the entire picture of exactly who lobbied and how much money was spent against any one proposal [to limit SNAP purchases to real food].”

Meanwhile, JPMorganChase has EBT contracts with more states than any other bank and rakes in fees galore. “[SNAP] store purchases at the register go to JP Morgan … which authorizes the request. And that [purchase data] goes to the Federal Reserve Bank and the Fed reimburses, say, Wal Mart,” explained Simon, who stressed that the USDA strangely refuses to release comprehensive SNAP purchase-redemption data so the big picture can be fully understood.

This issue has become so touchy that at least one journalist, Michael Morisy (MuckRock.com), is in hot water with the USDA for managing to obtain some of this data. But the truth cannot be contained forever. A newspaper, the Sioux Falls, S.D., Argus Leader, last year in South Dakota’s federal court district filed a lawsuit to try and force the government to release all redemption amounts, including how much the Fed reimburses the stores who accept EBT purchases, and how much SNAP money goes to buy specific products.

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